Location of Repository

Statistical Arbitrage: Opportunity Spotting for Financial gain in Financial Markets

By John Holme

Abstract

The project sought to identify anomalies in the price-time relationship of historically highly correlated company stocks, and to exploit these anomalies by trading both sets of stocks in a manner so as to yield a profit independently from financial market movement.\ud The stock positions taken upon each opportunity are those of a zero investment strategy (i.e. the same value of one stock is bought as is sold in another stock – with a net of zero outlay). The idea being that the bought stock rises and/or the sold stock falls. Either way makes money.\ud The aim of the work was to engineer this Statistical Arbitrage system, which spots real-time opportunities, and capitalize upon the event for profit. The application has indeed been engineered, and to this end this aspect part of the work has been realized.\ud While significant annualised percentage gains of between 6.0% and 44.1% have been achieved in later simulations, this could have be due to factors present in the market at the time and/or as yet unconsidered influences. Poor or inconsistent performance in falling and level market conditions leave, at least myself, unwilling to invest in the strategy, without more work being undertaken.\ud While the overall outcome of this work does not bode well for a totally infallible alchemist dream, I still believe that somewhere in this method is a holy grail, and would urge other individuals to complement this work if at all possible

Publisher: University of Leicester
Year: 2011
OAI identifier: oai:lra.le.ac.uk:2381/9529

Suggested articles

Preview

Citations

  1. (2010). [Online] Available at: http://en.wikipedia.org/wiki/Data_modeling#Modeling_methodologies
  2. (2010). [Online] Available at: http://office.microsoft.com/en-us/excel-help/linest-HP005209155.aspx?CTT=1
  3. (2010). [Online] Available at: http://www.hedgefund-index.com/d_statarb.asp Page
  4. 14 Create table and views The main tables and views from the database are presented in the schema can be seen on the attached CD in the file crebas.sql. Trading the UK Stock‖.
  5. (2009). A Colossal Failure of Common Sense: The Incredible Inside Story of the Collapse of Lehman Brothers: doi
  6. (1992). Analysis of Financial Time Series‖, Extraction of signals and the formation of a trigger point for a financial trading strategy. An M.Sc. thesis
  7. (2006). Aronson: ―Evidence-Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals‖. doi
  8. (2010). Author: Chris Stone. ―Finding Profit
  9. (2010). Available at: http://www.marketwatch.com/
  10. (2010). Available at: http://www.sungard.com/fame
  11. (2010). Available at: https://us.etrade.com/e/t/home
  12. Chart Patterns: Bloomberg Market Essentials: Technical Analysis‖.
  13. (1999). Durrett,"Essentials of Stochastic Processes (Springer Texts in Statistics)" doi
  14. (2010). Group. ―ITG Single-Stock Algorithms‖ [Online] Available at: http://www.itginc.com .
  15. (2003). High Frequency Pairs Trading with U.S. Treasury Securities: Risks and Rewards for Hedge Funds doi
  16. Idiosyncratic Risk An Empirical Analysis, with Implications for the Risk of Relative-Value Trading Strategies doi
  17. (2009). Inside the Risk Arbitrage: (A Global Review of Pairs Trading by Quant Methods‖, Publisher:
  18. (2010). Long-Term Capital Management. [Online] Available at: http://en.wikipedia.org/wiki/Long-Term_Capital_Management Page
  19. (2000). Long/Short Hedge Fund Strategies (Hardcover) by Joseph G. Nicholas (Author) "
  20. Market Neutral Investing: Build Consistent Low-Risk Profits by creating Your Own Hedged Portfolio‖.
  21. (2000). Market-Neutral Investing: Long/Short Hedge Fund Strategies‖.
  22. (2007). Mutual Asset Managers Launches Global Statistical Arbitrage Fund Involving a Focused 10-week Project for Tiger‖
  23. (2007). Onam to launch Global Statistical Arbitrage fund‖.
  24. (2008). Optimal Pairs Trading: A Stochastic Control Approach‖, doi
  25. (2006). Page 183 of 191 ―Pairs Trading: Performance of a Relative Value Arbitrage Rule‖, doi
  26. (1999). Pairs Trading: performance of a relative value arbitrage rule‖, doi
  27. (2004). Pairs Trading: Quantitative Methods and Analysis‖.
  28. (2003). Pairs Trading‖. Posted:
  29. (2009). Secret diary of a Systematic Trader,”Discussions on Systematic and StatArb Trading” Market Neutral Trading Strategy, [Online] Availale at: http://broadreport.wordpress.com/
  30. (2007). Statistical Arbitrage: Algorithmic Trading Insights and Techniques‖. doi
  31. (2010). Statistical Arbitrage: Arbitrage, Hedge Fund, Global Macro, Convertible Arbitrage, Mean Reversion, Volatility Arbitrage,
  32. (2007). Stimulating The Quant Bloodbath‖.
  33. Table: NASDAQ_company */ ticker char(10) not null,
  34. Table: NASDAQ_equity_price */ ticker char(10) not null, dt datetime not null, closingPrice float default '(0)' null , pctChange float default '(0)' null , change float default '(0)' null , volume float default '(0)' null
  35. (2001). The Complete Arbitrage Deskbook‖.
  36. (2006). The Complete Guide to Spread Trading (McGraw-Hill Trader's Edge)‖.
  37. (2008). The Credit Crunch: Housing Bubbles, Globalisation and the Worldwide Economic Crisis‖. doi
  38. (2007). The Financial Spread Betting Handbook: A Guide to Making Money Trading Spread Bets‖.
  39. (2006). The Handbook of Pairs Trading : Strategies Using Equities, Options, doi
  40. (2003). The Market Maker's Edge: A Wall Street Insider Reveals How to: Time Entry and Exit Points for Minimum Risk, Maximum Profit; Combine Fundamental and ... Trading Tactics from a Wall Street Insider‖. Publisher: McGraw-Hill Professional; New edition edition (1
  41. (2002). The WorldCom collapse‖, [Online] Published by: Frontline. Volume 19 -
  42. (2000). Tiger Management Closes‖.
  43. Trading Chaos: Applying Expert Techniques to Maximize Your Profits‖.
  44. (2004). Trading Pairs: Capturing Profits and Hedging Risk with Statistical Arbitrage Strategies‖.
  45. (2010). Wolverine Execution Services LLC. ―about software execution integrated support‖. [Online] Available at: http:// www.tradewex.com /pairsTrader.htm.

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.